Lock v Grandine
[2005] FMCA 807
•14 June 2005
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| LOCK & ANOR v GRANDINE | [2005] FMCA 807 |
| BANKRUPTCY – Creditor’s petition – execution of an authority to a trustee to call a meeting of creditors and take control of the debtor’s property under Part X of the Bankruptcy Act 1966 (Cth) – consideration of discretionary factors arising on an application for adjournment of hearing of petition – application refused – order for sequestration made. |
| Bankruptcy Act 1966 (Cth), ss.43, 52, 188, 188A, 189AAA |
| Field v Commercial Banking Co of Sydney Ltd (1978) 22 ALR 403 Rozenbee v Kronhill (1956) 95 CLR 407 Kantfield Pty Ltd v Lockwood [2004] FMCA 309 Re David Bendel Ex parte Lowe Lippmann (A Firm) (unreported, Federal Court of Australia, 19 April 1996, per Merkel J) |
| Applicant: | EUPHEMIA DOROTHY LOCK |
| Supporting Creditor: | CLIVE PEETERS PTY LTD (ACN 058 868 018) TRADING AS CLIVE PEETERS |
| Respondent: | WALTER GRANDINE |
| File Number: | MLG 135 of 2005 |
| Judgment of: | Hartnett FM |
| Hearing date: | 6 June 2005 |
| Delivered at: | Dandenong |
| Delivered on: | 14 June 2005 |
REPRESENTATION
| Counsel for the Applicant : | Mr Gardiner |
| Solicitors for the Applicant: | Robert M Phelan & Co Pty |
| Counsel for the Supporting Creditor Clive Peeters: | Mr A.W. Ellis |
| Solicitors for the Supporting Creditor Clive Peeters: | Michael Sandor & Associates |
| Counsel for the Respondent: | Mr C.E. Rechnitzer |
| Solicitors for the Respondent: | RB Legal Pty Ltd |
ORDER
A sequestration order be made against the estate of Walter Grandine.
The applicant’s costs of and incidental to the Petition, including reserved costs, be taxed in accordance with the Federal Court Rules and when taxed paid out of the estate of Walter Grandine.
AND THE COURT NOTES the date of the act of bankruptcy is 10 January 2005.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 135 of 2005
| EUPHEMIA DOROTHY LOCK |
Applicant
And
| WALTER GRANDINE |
Respondent
And
| CLIVE PEETERS PTY LTD (ACN 058 868 018) TRADING AS CLIVE PEETERS |
Supporting Creditor
REASONS FOR JUDGMENT
The applicant creditor applied to the court for a sequestration order under section 43 of the Bankruptcy Act 1966 (Cth) (the Act) against the estate of Walter Grandine by the filing of a creditor’s petition on the 4th day of February 2005. The creditor’s petition is founded on a bankruptcy notice served upon the respondent debtor on 19 December 2004. The sum owing by the debtor to the applicant is an amount of $106,585.89 pursuant to a judgment obtained in the County Court of Victoria at Melbourne on 1 May 2001 after a contested hearing at which the debtor gave evidence and being the sum of $77,289 together with interest of $29,296.89.
The creditor’s petition was supported by those affidavits that are required in relation to service and searches. I am satisfied with the contents of those affidavits.
The supporting creditor gave notice of intention to support the proceedings dated 1 April 2005. Notice was given that the supporting creditor is a creditor of the judgment debtor and is owed the sum of $5,097.86 pursuant to a judgment obtained in the Melbourne Magistrates Court on 18 August 2004.
On Friday, 29 April 2005, the debtor signed an authority under section 188 of the Act authorising Robin Lee Erskine of Brooke Bird and Co to call a meeting of creditors. A statement pursuant to section 188A of the Act was executed. By reason of the stay imposed by section 189AAA of the Act, Registrar Bardsley adjourned the hearing of the petition, which was last listed for hearing on 2 May 2005 to 6 June 2005. The debtor also executed a statement of affairs (on 28 April 2005) which he declared to be correct and wherein he declared at question 18C that he first had difficulty paying his debts in the year 2004.
An affidavit sworn by the solicitor for the petitioning creditor Mr Robin Martin Phelan and filed 6 June 2005 accurately sets out the history of matters as between the applicant and respondent. No material going to the making or otherwise of the sequestration order nor as to the matters referred to in paragraph 6 of these reasons has been filed by the respondent in the proceedings. The respondent sought however that the creditor’s petition hearing not proceed but rather be adjourned to a date after 16 June 2005 that being a date on which the creditors shall again meet and being an adjourned date agreed upon at a meeting of creditors which took place on 2 June 2005. Any further adjournment of the hearing of the creditor’s petition is opposed by the applicant and supporting creditor.
Consideration
In considering whether the hearing of the petition should be adjourned pending a further meeting of creditors, counsel for the applicant referred the Court to the decision of the Full Court of the Federal Court in Field v Commercial Banking Co of Sydney Ltd (1978) 22 ALR 403. In particular, the Court was referred to the decision of Sweeney J (with whom Franki J agreed) at 411 to 412:
It would be unwise to attempt to draw up an exhaustive catalogue of the circumstances to which the court should pay regard in considering an application for an adjournment of a creditor’s petition. However, to illustrate the point that the one circumstance of the execution of an authority should be looked at in the general context of each individual case, one may usefully refer to some other relevant circumstances in such a case, as for example:-
(1)the course of dealings between the parties, from the time when the obligation to the petitioning creditor is said to have arisen to the date of the hearing;
(2)the attitude to the application of the petitioning creditor, as prima facie, on proof of the matters mentioned in section 52(1) of the Bankruptcy Act 1966, the court will proceed to make an order for sequestration (see Rozenbee v Kronhill (1956) 95 CLR 407);
(3)the general financial position of the debtor;
(4)the relation between the debt of the petitioning creditor and the total liabilities of the debtor, as it may be seen, for example, that the petitioning creditor's opposition would be sufficient to defeat any special resolution proposed at a creditors meeting;
(5)any attitude to the application disclosed by other creditors;
(6)any evidence bearing upon the question whether it would be for the advantage of the creditors that the debtor's affairs be administered under Part X of the Act;
(7)the likelihood that the debtor would be able to place before a meeting of creditors a particular proposal, or evidence of his general circumstances, calculated to persuade them to vote for the administration of his affairs under Part X.
It will at once be obvious that many of these circumstances will be within the knowledge of the debtor, rather than of the petitioning creditor, and it will be for the former to give evidence of them. Such evidence should, where practicable, be in affidavit form.
When looking to these matters, the following are relevant facts in this particular case:
a)the obligation to the petitioning creditor had certainly arisen by the time of the judgment of the County Court of Victoria in May 2001. The petitioning creditor has sought payment of the moneys owed to her before and since that time. On 23 April 2002 a previously lodged petition against the debtor was dismissed because the bankruptcy notice on which it was based did not correctly calculate the interest. Despite the debtor's knowledge of the debt owing to the petitioning creditor in excess of $77,000 (that knowledge arising from the trial of the County Court proceeding in 2001 and from the debtor’s attendance at court when the previous petition was dismissed) and despite the knowledge of the debtor that he had and has still not paid that sum of money to Mrs Lock, the respondent nonetheless asserted in his statement of affairs that his financial difficulties did not arise until the year 2004;
b)the petitioning creditor wishes for a sequestration order to be made. I am satisfied that the statutory preconditions for such an order to be made have been met and the question is whether an adjournment of that hearing should occur in the circumstances of the adjourned creditors meeting;
c)the general financial position of the debtor can accurately be described as parlous. The controlling trustee convened a meeting of creditors on 2 June 2005 by notice dated 20 May 2005 and provided a report dated 20 May 2005 which is annexed to the affidavit of Robert Martin Phelan and marked exhibit RMP6. By letter dated 3 June 2005 and marked as exhibit RMP7 to the affidavit of Robert Martin Phelan, Mr Phelan detailed to the controlling trustee his account of what occurred at that meeting and to the date of the swearing of his affidavit he had not received any response from the controlling trustee contradicting any matters;
d)the controlling trustee's report dated 20 May 2005 provides relevant information. The debtor elected to put a proposal for a personal insolvency agreement to his creditors, which was the subject of the meeting of creditors which occurred on 2 June 2005. The summary of the assets and liabilities of the debtor as compiled from his statement of affairs is on page 2 of that report. The debtor's property was said to consist of:
Anticipated taxation refund: $Unknown
Tools of trade: $150
Unpaid wages Grandine Developments Pty Ltd: $40,000
Total: $40,150
With respect to the anticipated taxation refund, no moneys are likely to emanate from this source. The controlling trustee during the currency of her investigations received an assessment from the Australian Taxation Office stating that the debtor had unpaid debt of $44,588.05 for the years ended 30 June 2001, 2002, 2003. The debtor has not submitted taxation returns for a number of years. The unpaid wages by Grandine Developments Pty Ltd are unlikely to become assets in the bankrupt estate. The controlling trustee advised the creditors that Grandine Developments Pty Ltd was placed into voluntary administration on 24 June 2004 and that the creditors accepted a deed of company arrangement which has now been fully complied with and finalised. Mr Grandine did not receive any distribution under the administration and any debts owed to both he and his estranged wife were deferred. Based on the controlling trustee's inquiries, the company has no assets and is no longer trading. Hence, it is likely that the debtor's claim in this company has no realisable value;
e)the debtor's liabilities consist of various debts, including medical fees, accounting fees, legal expenses and personal guarantees given. In addition to the creditors disclosed in the statement of affairs, since the appointment of the controlling trustee two additional claims were received. One of those was by the debtor's estranged wife and the other from Mr Moshe Arad. The controlling trustee was unable to quantify the level of this indebtedness;
f)the controlling trustee noted as a result of her investigations that having conducted searches with the Victoria Titles Office for any properties held in the name of the debtor, such searches failed to identify any properties. The former matrimonial home, which was initially owned by a company named Skymon Pty Ltd of which the debtor was sole director and shareholder, was transferred to Mrs Kerryn Metz in July 2001. It has recently been on‑sold to a third party. The controlling trustee had no information regarding the net equity of the sale of the property, nor any significant information as to whether Mr Grandine was entitled to any share of the equity in the former matrimonial home, albeit that he has commenced family law court proceedings against his estranged wife for a share in that property. The controlling trustee suggested to the debtor to increase his offer to the creditors to include any additional percentage of the net proceeds from any Family Court order that may be made on his behalf in addition to the cash lump sum amount of $65,000;
g)results of Australian Securities and Investments Commission searches revealed current and former directorships and current and previous shareholdings held by the debtor. Many of the companies have been deregistered. One company, Nicolisa Nominees Pty Ltd, was placed into liquidation on 13 November 1991 pursuant to an order of the Supreme Court. The records of ASIC disclosed that the debtor resigned as a director after the company was liquidated. Further, between the period of 30 September 1997 to 30 March 2000 the debtor was banned by the Australian Securities and Investments Commission from managing a corporation. The controlling trustee concluded it highly unlikely that any shareholdings of Mr Grandine had any value.
The proposal put forward by the debtor being a draft personal insolvency agreement was summarised by the controlling trustee as follows:
1)that he pay to a trustee the sum of $65,000 payable within 90 days of the acceptance of his proposal;
2)the trustee to apply any moneys received pursuant to his proposal, firstly, in payment of all disbursements and remuneration of the trustee of the proposal and that of the controlling trustee of the debtor, and secondly, in payment rateably to the debtor's creditors on the basis that each and every creditor received the same number of cents in the dollar.
That proposal was made pursuant to Part X of the Bankruptcy Act 1966. Thereafter, in addition, the debtor agreed to the following clauses being added to the terms of his personal insolvency agreement:
1)that the antecedent transaction provisions of the Bankruptcy Act 1966 would apply;
2)that proceeds of the pending matrimonial proceedings against the debtor's estranged wife Ms Metz would be applied as follows: firstly, in payment of legal expenses and disbursements incurred as a direct result of matrimonial proceedings against the debtor's estranged wife; secondly, in payment of the sum of $65,000 advanced by Mr Gary Maxwell to the debtor in accordance with the personal insolvency agreement; lastly, that 50 per cent of the balance of any surplus after the above debts had been discharged in full would be paid to the debtor's trustee for the benefit of his creditors.
The controlling trustee advised that moneys put forward in relation to the debtor's proposal were to be paid by a third party contributor, namely a Mr Gary Maxwell. Mr Gary Maxwell confirmed with her that he had agreed to fund the proposal in the event it was accepted by creditors. There was no evidence as to whether Mr Maxwell had indeed the necessary funds and the proposed payment was not secured. The controlling trustee when looking to the income of the debtor concluded that out of income he would not be required to make a contribution to his bankrupt estate. She noted that the debtor currently was provided with the use of a 2002 Holden Commodore not owned by him.
In assessing the estimated costs of administering the debtor's affairs pursuant to Part X of the Act the controlling trustee estimated the remuneration of the trustee and controlling trustee to be in the vicinity of $25,000 plus GST and indicated she would be seeking that the creditors set a maximum cap for her remuneration at the forthcoming meeting that would limit the investigations undertaken by her. If difficulties ensued as a result, she would seek to increase her remuneration cap with a further meeting of creditors. In addition, the estimated disbursements of the trustee and controlling trustee would be in the vicinity of $7,635 to $9,915. If the meeting was adjourned, as it has already been, the controlling trustee's fees would increase. The controlling trustee was unable to verify the claims by Mr Arad or Ms Metz and calculated the variable estimated return to creditors on the basis that those claims were admitted or, alternatively, on the basis that they were rejected. The controlling trustee concluded that the creditors' interests would be better served by accepting the debtor's proposal for dealing with his affairs under Part X of the Act. It is difficult to see how that conclusion was reached.
Mr Arad, Ms Metz and Mr Maxwell were present at the meeting of creditors held on 2 June 2005. Out of the amount of $65,000 the trustee's costs would consume a figure approaching $40,000 before any apportionment between creditors. Mr Arad, Ms Metz, Mr Aldred and the petitioning creditor and supporting creditor all of whom desired a sequestration order to be made, were owed in excess of 65 per cent of the debt. Mr Aldred's claim is in the sum of $410,000. Mr Arad's claims and its various components make up a total of approximately $599,000. Otherwise the value of claims of those supporting the making of a sequestration order are as set out in paragraphs 12 and 15 of the affidavit of Mr Phelan.
On the analysis as undertaken by the controlling trustee, it is difficult to see any advantage to creditors that the debtor's affairs be administered under Part X of the Act. If a Part X proposal is to succeed, a special resolution requiring a majority in number and at least three-quarters in value of the creditors present is required to bind creditors. It was submitted by counsel for the applicant the court could infer that the prospects of a special resolution being passed were minimal. Further, that on the debtor's own statement and evidence he is parlous and insolvent. The respondent has no capacity to borrow and would appear to be funded by a friend on terms unknown to the court or creditors and with uncertainty as to whether the funds will be provided. It is not possible for the court to undertake in any detailed way an examination of the indebtedness of the respondent, nor do anything other than make a general calculation as to the number of creditors opposing or supporting the adjournment and the value of debts owed to each creditor, as was the case in Kantfield Pty Ltd v Lockwood [2004] FMCA 309 at [36]:
It is not appropriate, nor indeed possible, for the court to undertake a detailed analysis of the extent and nature of the indebtedness, nor is it appropriate to do anything other than make some general assessment as to the number of creditors opposing or supporting the adjournment and the value of debts owed to each creditor.
Mr Phelan deposes as to the creditors meeting held as follows:
The questioning of the Debtor and the Trustee during the creditors meeting, and the statements made by the Trustee herself, led me to the conclusion that many, if not most, of the creditors’ claims were uncertain and, despite adequate opportunity to do so, the creditors had failed to provide to the Controlling Trustee any, or sufficient, evidence in support of their claims. A Mr Maxwell, who has apparently promised to put up the $65,000.00 to fund the proposal put by the debtor to creditors in the proposed Part X arrangement, is apparently the major shareholder of the first named creditor, Advanced Systems International Pty Ltd but he has failed to provide any evidence to support that he has a provable claim of $247,710.00.
I am mindful that the petitioning creditor has the right to proceed with her request for a sequestration order to be made at this hearing and that the respondent debtor is insolvent. There does not appear to be an advantage to creditors generally in permitting the Part X meeting of creditors to further proceed and I am not prepared to exercise the court's discretion in the granting of an adjournment until after the adjourned meeting of creditors on 16 June 2005. The Court has considered in exercising that discretion whether it is fair, appropriate, proper or in the interests of justice to adjourn the prima facie entitlement of a judgment creditor to have a sequestration order made (Re David Bendel Ex parte Lowe Lippmann (A Firm) (unreported, Federal Court of Australia, 19 April 1996, per Merkel J)). In my view, a sequestration order should be made against the estate of Walter Grandine and I propose to make that order and consequential orders, noting that the date of act of bankruptcy is 10 January 2005.
I certify that the preceding fifteen (15) paragraphs are a true copy of the reasons for judgment of Hartnett FM
Associate: Sophie Killen
Date: 14 June 2005
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